Frank Legan Advisors at Cedar Brook Group

The 5 Biggest Money Mistakes in the First 10 Years of Retirement

2023-5_The 5 Biggest Money Mistakes in the First 10 Years of Retirement

By Frank Legan

​​Retirement is supposed to be a time of relaxation and enjoyment, but for many, it can also bring financial anxiety and stress. After all, it’s a major life transition that requires careful planning and smart decision-making. Unfortunately, even the most prepared planners can fall victim to common money mistakes during the first 10 years of retirement.

These missteps can leave an impact on your financial stability and overall retirement experience. In this article, we will outline the top 5 biggest money mistakes people make in the first decade of retirement, along with practical solutions to help you avoid them.

1.   Not Creating a Withdrawal Strategy

Financial planning doesn’t stop once you enter retirement. Capitalize on your wealth by deciding the most tax-efficient way to withdraw funds in your golden years.

Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s are taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate.

As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get hit with a hefty tax bill.

Create a withdrawal strategy with the help of a trusted professional who can make sure you’re withdrawing funds at a sustainable rate and that you’re doing it in a tax-efficient way.

2.   Overspending in Retirement

Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.

It’s easy to underestimate the amount of money you’ll spend those first few years when you don’t account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. My advice? Create a spending plan. Calculate your monthly income given your withdrawal strategy (See #1) and then create a budget.

3.   Ignoring Inflation

Another major challenge we see new retirees face is the desire to play it safe in the stock market. This can do more harm than good due to inflation risk.

While healthcare expenditures are typically affected less by inflation than other spending categories, from 2021-2022 there was a 4.0% increase in medical care services compared to the historical average inflation rate of 1.23%. What does this mean? Retirees are more likely to feel the effects of inflation due to mandatory expenses, such as healthcare costs.

As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still one of the biggest threats to your nest egg. Sit down with a trusted professional who can help you strike a balance between protection and growth.

4.   Not Having an Emergency Fund

Could you comfortably pay an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it’s even more critical to have one in your retirement years.

It used to be recommended to have 3 to 6 months of expenses saved up in an easily accessible savings account, but now more professionals are recommending at least 12 to 18 months’ worth. This may sound like a lot, but an emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your portfolio to beat inflation (#3 on our list) while having a safety net to fall back on.

5.   Going Through Retirement Alone

It took decades of strategizing to grow and shield your wealth up until this point. Don’t just “wing it” in retirement and manage your money alone. Having a trusted financial advisor by your side can be the difference between having a retirement fund that dries up and having one you can’t outlive.

At Cedar Brook Group, we support you by creating a personalized retirement road map to address your concerns and guide you to closer financial independence. It’s our top priority to help you avoid as many mistakes as possible so you can enjoy your retirement with comfort and ease. To see if I’m the right fit to help you pursue your ideal financial future, reach out to us at 440-683-9213 or flegan@cedarbrookfinancial.com or schedule a complimentary introductory call online!

About Frank

Frank Legan is Partner, Financial Advisor, and member of the Forward Look Committee at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, closely held business owners, artists, families, and retirees. He specializes in lifetime income strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies. Frank has a Bachelor of Arts in Political Science from the University of Dayton, as well as a Master of Public Administration focused on municipal management from Cleveland State University. Prior to joining Cedar Brook Group, Frank was a financial advisor in the private client group at Merrill Lynch and with NatCity/PNC Investments. Frank is active in his community, serving on various councils, boards, and committees. Frank serves as Chairman Emeritus of the Board of Directors for Catholic Charities Diocese of Cleveland. When he’s not working, you can find Frank spending time with his wife, Laura, their daughter, Reese, and their beloved collie, Charlie. Frank and his family are volunteers at St. Francis of Assisi church in Gates Mills. To learn more about Frank, connect with him on LinkedIn.

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About Frank Legan

frank-legan-bio

Frank Legan is a Cleveland-based author, a partner and financial advisor at The Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, business owners, artists, families and retirees. He focuses on lifetime income planning strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies.

Frank holds a B.A. from the University of Dayton and a master’s degree from Cleveland State University.

Frank has been active in his community as he served as a Council Representative at Large for the City of Highland Heights, as well as Vice President and Secretary for the Hillcrest Council of Councils. He currently serves as a Board Member and Emeritus Chairman for Catholic Charities Diocese of Cleveland.

Frank lives in Gates Mills with his wife Laura, daughter Reese and their collie Charlie.

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